On May 4, 2018, FERC issued an order approving a proposal by the Southwest Power Pool, Inc. (“SPP”) to eliminate transmission revenue credits for certain non-capacity network upgrades and to exempt non-firm and short-term firm point-to-point transmission service requests from incurring payment obligations for otherwise creditable system upgrades. Recognizing the flexibility afforded to Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”) in the assignment of network upgrade costs, FERC rejected protests that SPP was not sufficiently recognizing the benefits of non-capacity upgrades.

In a series of filings accepted by FERC between 2005 and 2013, SPP added various provisions to its tariff regarding direct assignment of transmission system network upgrades costs caused by transmission customers, network customers, and newly-interconnecting generators. SPP employs a “but for” test to determine whether any new network upgrades are needed to accommodate such service requests received in a window of time — i.e. SPP identifies system constraints and any network upgrades that would not be necessary “but for” the new service requests. The costs for the resulting network upgrades (called “Creditable Upgrades”) are directly-assigned to the requesting customers as the project sponsor. The project sponsor could then recover the cost of the Creditable Upgrades by new transmission service customers that would not have been able to take transmission service “but for” the Creditable Upgrade. SPP’s Creditable Upgrade framework was unwieldy to implement, ultimately relying on a stakeholder-approved process to determine the subsequent use of a Creditable Upgrade and the associated revenue credit payment obligations of new customers based on the incremental impacts of each reservation on each Creditable Upgrade.

In December 2017, SPP proposed various revisions to its tariff to reduce the complexity and resource-intensity of its revenue crediting process. First, SPP proposed to clarify that a “Network Upgrade that does not increase the power-flow capacity of a circuit on the Transmission System…shall not be considered a Creditable Upgrade.” As SPP argued, ordinarily, non-capacity upgrades are substation facilities constructed to provide new generator interconnections, and thus, generally only benefit the interconnecting generators, and not the broader transmission system. Second, SPP proposed language clarifying that revenue crediting requirements will only adhere to customers taking long-term firm point-to-point service. This restriction was reasonable, SPP asserted, because initial funding attaches to long-term service requests, whereas it would be more appropriate, SPP argued, to distribute revenues from short-term point-to-point service through the formula rate.

FERC accepted SPP’s proposals, finding them to be just and reasonable. With regard to SPP’s proposal to eliminate non-capacity upgrade crediting, FERC rejected protests arguing that SPP provided no support that non-capacity upgrades do not provide broad benefits. Rather, FERC noted that RTOs and ISOs have been given flexibility regarding upgrade cost assignments, and further found that SPP had sufficiently explained the isolated benefits typically associated with non-capacity upgrades for purposes of cost crediting consideration. Because SPP’s proposal continued to provide a valuable financial right to interconnection customers funding network upgrades that provide system benefits (increased capacity), FERC found that the proposal met its interconnection policy guidelines.

Regarding SPP’s second proposal, FERC agreed that limiting crediting obligations to long-term transmission service was just and reasonable. FERC rejected arguments that that proposal would lead to undue discrimination between long- and short-term point-to-point service customers because the majority of upgrade funding comes from long-term service anyway, FERC acknowledged, while short-term requests not only constitute a much smaller share of the total value of upgrade credits, they also take up a substantial amount of data and time for SPP to process.

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